Condo Conversions – The When, Why, and How
A “condo conversion” is relatively simple in concept. The process transforms your multifamily residence into several, separate units that can be sold and owned independently.
Why do a condo conversion?
Whether it’s a good idea depends on your housing market. A condo conversion makes sense when the units would sell for more individually than together as a multifamily. Keep in mind, though, that condo buyers may have higher expectations than multifamily investors. Even if not required by law, low quality finishings and building quirks may need to be addressed before the conversion would be financially wise.
When to do a condo conversion?
This question isn’t terribly simple because there are conflicting cost considerations, tax consequences, and tenants’ rights implications.
Once you start the process of a condo conversion, state law requires that you notify any tenants. This notice establishes their right of first refusal to purchase the unit. More importantly, it triggers a period of time when you can’t evict them except for good cause – no matter what the lease says or when it ends. State law gives tenants at least one year to stay put (2 years if elderly or disabled). Some towns give much greater periods. Boston, for example, provides disabled and elderly tenants the right to stay for 5 years with only very limited increases in rent.
A conversion can also impact your property tax and capital gains tax considerations.
Because of all of these factors, the timing of the conversion depends on your particular municipality, tax situation, vacancy rate, and goals.
How to do a condo conversion?
The condo conversion process is a collaboration among attorneys, architects, and surveyors. The attorney creates the master deed that defines which property belongs to which units or is part of the common area. The attorney also creates the governing documents for the condo association. Well-prepared master deeds and trusts help prevent conflicts and misunderstandings in the future among unit owners.
The other professionals, the architect and the surveyor, prepare plans that visually describe the building and land. These plans illustrate the attorney’s written description of the property. Good ones prevent confusion in the future.
While some municipalities have a condo conversion tax (e.g. Boston) and others have an approval process (e.g. Arlington), most condo conversions are accomplished simply by filing these documents and plans with your county’s registry of deeds. Once complete, the individual units become separate property, ready to be sold or owned independently.
How much does it cost?
For a typical small project, budget about $7,000 for all fees – attorney, architect, surveyor, and government fees. If you’re in a municipality that charges a tax or has an onerous approval process, the budget should be higher.
If you want to explore your options for a condo conversion, contact us today. We can help you balance the competing factors, make an informed decision, and efficiently move through the process.